Different methods and techniques are used for measuring the competitiveness of a nation as regards its firms or industries in relation to those of other nations. In this section of the chapter the following methods and techniques for measuring competitiveness are discussed:
the revealed comparative advantage (RCA) and the Porter ‘diamond’ model. Other methods and techniques for measuring competitiveness not discussed in this thesis include:
the intra-industry trade model; the benchmarking model; strengths, weaknesses, opportunities and threats (SWOT) analysis, the general equilibrium models; partial equilibrium methodologies and the stochastic coefficient regression method. As indicated earlier, the Porter model is used in order to augment the supply chain analysis, which is the approach chosen for the study.
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4.5.1 Revealed comparative advantage (RCA)
The concept of revealed comparative advantage (RCA) is grounded in conventional trade theory (Mosoma, 2004: 134). RCA could be indicated in terms of the trade performance of the individual commodity pattern of trade, which reflects the relative market costs and differences in non-price competitive factors (Balassa, 1965). The Balassa method compares a country’s share of the world market in one commodity relative to its share in all traded goods.
The relative revealed comparative trade advantage (RTA) index is an improved version of the Balassa original version (RCA), as expounded by Vollrath (1991), which reflects both imports and exports and is formulated as:
RTAij = RXAij – RMPij
RXAij = (Xij / ∑1,1 ≠ iXi1) / ∑k,k ≠ iXkj / ∑k,k ≠ i∑1,1 ≠ iXk1
RMPij = (Mij / ∑1,1 ≠ iMi1) / ∑k,k ≠ iMkj / ∑k,k ≠ i∑1,1 ≠ iMk1,
where X = exports, M = imports, subscripts i and k denote the product categories, and j and 1 denote the country categories.
The numerator is equal to a country’s exports or imports in a particular product category, relative to the exports or imports of the product for all other countries. In contrast, the denominator reveals the exports or imports of all products by considering the commodity in terms of the percentage of all other countries’ exports or imports of all products. The level of these indicators shows the degree of revealed export competitiveness and import penetration.
A value lower than 1 indicates a competitive trade disadvantage, while a value higher than 1 indicates a competitive trade advantage (Mosoma, 2004: 134).
The main problem with this technique is that it does not reveal how an industry acquired its competitive edge. Therefore, it fails to significantly reveal what the reasons are for the non-competitiveness of an industry or how the situation could possibly be rectified (Mosoma, 2004: 134).
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4.5.2 Porter’s ‘diamond’ model
Porter (1990) argues that nations are most likely to succeed in industries or industry10 segments where the national ‘diamond’11 is most favourable. His method evaluates both the competitive nature of the farmer and also that of all participants involved in the supply chain.
However, what must be noted is that the strongest and most enduring competitive advantage for nations is primarily created by those factors that have the least mobility (Oster, 1994). The six determinants, as enumerated by Porter, are discussed below (Porter, 1990).
1. Factor conditions refer to the nation’s position in terms of the factors of production, the natural resources level or the production costs, such as the price of variable inputs (labour, pesticides, machinery, fuel or diesel) infrastructure and knowledge resources. The minerals resource base and land quality are relatively immobile, although iron can be moved and fertiliser applied (Oster, 1994: 107). Besides the relative immobility of both physical and organisational infrastructure, infrastructure forms the basis of comparative advantage.
Furthermore, technological and organisational capabilities are a major source of persistent competitive advantage for a nation, emanating from the education system, prevailing culture and history.
Home-based technologically active firms provide the educated labour force, communications networks and technical and managerial structure to support technological innovation.
However, globalisation is changing the ways in which knowledge is produced, converted to technology and then transformed into goods and services (Howells & Wood, 1993: 3).
In general, human resources are somewhat more mobile. However, the physical movement of labour across national borders, in most instances, has been limited. Without physical movement of labour, a considerable increase in the diffusion of knowledge is one reason that, as industries mature, even if they require labour with particular skills, they tend to spread out across the world (Oster, 1994: 107).
Notably, capital perhaps is the most mobile of the factors of production, thus its availability is no longer likely to form a very stable competitive advantage for an area (Oster, 1994).
10 Porter (1990: 33) defined an industry as a group of competitors producing products or services that compete directly with one another.
11 ‘Diamond’ is a term that Porter uses to refer to the six determinants of competitiveness as a system.
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The effects of climate and global warming, no matter whether positive or adverse, are also significant for agricultural production.
2. Demand conditions are based on the nature of domestic demand for an industry’s product or service. Such conditions involve the effects of domestic composition, demand size and growth pattern, as well as the interplay of demand conditions (Porter, 1990).
3. Related and supporting industries refer to whether a nation’s supplier industries and related industries are present or not determine the extent of internal competition. If present, they are able to benefit from labour attracted to an area in order to serve its core industry (Porter, 1990). The general emphasis is on the level of skilled labour available to support industry.
4. Firm strategy, structure and rivalry relates to the national conditions governing how companies are formed, organised and managed, as well as to the nature of domestic rivalry.
The process of competition weeds out inferior technologies, products and management practices, leaving only the most efficient firms as survivors (Oster, 1994: 109). When domestic competition is vigorous, firms are forced to become more efficient, to adopt new cost-saving technologies, to reduce product development time and to learn to motivate and control workers more effectively. The presence of fierce domestic competition also encourages firms to look to outside markets for growth, particularly in industries in which scale economies are important (Porter, 1990).
5. The role of chance occurrences has little to do with national strategising, being largely outside the sphere of influence of specific firms. Some examples that are of particular importance in influencing competitive advantage (Porter, 1990) include: acts of pure invention; discontinuities in input costs; technological discontinuities; significant shifts in world financial markets and exchange rates; surges of world and regional demand; political instability; HIV/AIDS; and wars.
6. Acknowledgement of the role of government recognises that, in general, government plays a significant role and can influence each of the above determinants, with the exception of chance events, either positively or negatively through government policies and operational capacity. Figure 4.1 shows the complete system of Porter’s ‘diamond’ model.
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FIRMS STRATEGY,
STRUCTURE AND RIVALRY
RELATED AND SUPPORTING INDUSTRIES
FACTOR CONDITIONS
DEMAND CONDITIONS Chance
Government
Figure 4.1 The complete system of the Porter ‘diamond’
Source: Porter, 1990:127
The next section briefly discusses supply chain analysis, which is the main approach used in this study to assess the determinants of competitiveness of the Namibian table grape industry.